Political Background

The
separation of powers which existed under the Soviet constitution was
essentially a myth. A Russian accurately characterized the
relationships that existed between party, state and society as,
...The state absorbed the society, the Party absorbed the state, and
the Party appartchiks, the nomenclature under the totalitarian
leadership of the Secretary-General absorbed the Party." Both
legislative and judicial branches served as rubber stamps" to
the Presidium of the Supreme Soviet which unlike the Supreme Soviet
itself was constantly in session. The development of political reform
in the late 1980s weakened the party's control over the reigns of
power. The devolution of power from the Presidium occurred through
the creation of the office of the President which received the
executive powers while the legislative powers were assigned to
Congress of Peoples Deputies. The judicial branch also achieved
higher visibility during the late Soviet period through the creation
of the Committee on Constitutional Supervision. The Soviet Union's
collapse in 1992 introduced radical changes into all aspects of
Russian society. Russia has little experience with democracy in any
form. Without a strong democratic tradition, it should not be
unexpected that instability would develop in all aspects of Russian
life. The role of governmental finance in post-Soviet society is no
exception. Competing explanations exist for Russia's travails but a
shared trait of many them is the distribution of power at the federal
level and the relationship between the federal and sub-national
levels of government.

Political
problems did not take long to develop in the Russian Federation after
the USSR's dissolution. At the federal level, the creation of the
present constitution is one cause of the instability which plagues
Russia today. After winning a national referendum on August 15, 1993
in which the electorate was asked to endorse the Yeltsin's reform
policy, he convened a constitutional assembly to ratify his version
of the new constitution. Three drafts were in contention to replace
the constitution under which the Soviet Union was nominally ruled.
Other than Yeltsin's constitution which became the one implemented,
the two other variants were the communist draft which advocated a
strong Presidium of the Supreme Soviet with a chairman who had
similar powers to the position of General Secretary during the Soviet
period and the Rumyanstev draft which contained plans to restrict
executive power and grant the legislative body wide powers. Yeltsin's
draft advocated the exact opposite of the aforementioned plans with
wide powers to the executive and minimal power delegated to the
legislative. After the Duma rejected Yeltsin's order to dissolve, he
ordered military troops to forcefully evacuate the building--which
they did by shelling it. Briefly, the president is the protector of
the constitution, human rights, and civil liberty. In order to
protect the constitution and the aforementioned rights, the
constitution grants the president wide injunctive and declarative
powers. The former powers consist of the president's ability to use
"conciliation procedures to resolve disputes between the federal
government and the governments of the constituent subjects and
disputes between the various subjects of the federation." A
three stage procedure exists for the adjudication of disputes but his
ability to suspend legislation after it is submitted to the
appropriate court" which he deems to be in violation of the
constitution is considered by many as inappropriate for a fledgling
democracy. The President also has the power to issue decrees and
orders which are superior to the laws of the government as long as
the decree or order does not violate the constitution. Further, the
president has the ability to appoint important member of his
government without consent for the Duma and has sole power to appoint
and remove the command structure of the Armed Forces. In regards to
the legislature, the president has the ability to dissolve the Duma
if it passes two no-confidence vote in the Russian government within
three months of each other and if it rejects three presidential
nominee for Chairman of the Russian government. Although there are
limitations of the president's ability to dissolve the Duma, it
remains a potential weapon against a contentious parliament that
affects every aspect of public finance.

The
power of the legislative and judicial branch are limited in relation
to the executive. Russia's judicial system consists of a several
court systems that have different spheres of federal/national
jurisdiction." The most visible court is the Constitutional
Court which has the right to review the constitutionally of all
federal laws, presidential orders and degrees, legislation of
government, and unratified treaties. Challenges to the aforementioned
areas must be brought by individuals with standing. Although the
Constitutional Court's power seems vast, the president's expansive
powers and lack of civil relations between the different branches
makes the Court's utilization of this power suspect. Federal law and
federal constitution laws are the two types of laws which exist in
the Russian Federation. The latter is considered superior to federal
laws. The procedure for enactment differ in each case. Once a bill is
passed it must presented to the president within five days of the
passage by the parliament. The president then has fourteen days to
reject the law. In order to veto the federal law, a two-thirds
majority must be gained in both parts of the legislative assembly. In
the case of federal constitutional law, three quarters of the
Federation Council and two thirds of the Duma must approve it for
enactment. The constitution does not describe any right for the
president to veto federal constitutional laws. According to Article
106 of the Russian Constitution, laws in regard to the following area
must be voted upon by the Federation Council: The federal budget,
federal taxes and levies, foreign currencies, custom regulation, and
currency issuance.

Budgeting

Recently, the Duma rejected the government's first draft of the
budget. Deputies were divided over the size of the projected federal
budget deficit, which was set at 95.4 trillion rubles or 3.5 percent
of GNP. When the budget is rejected by the Duma, the government has
20 days to revise and re-submit the budget. If differences exist
between the government's proposed budget and the Duma's, an option
exists to create a committee to reconcile their disagreements. The
Duma rejected the government's proposed 1997 budget in October 1996
and did not opt initially for such a commission. If no budget
agreement is reached, parliament would be forced to pass monthly or
quarterly budgets which would cause confusion throughout the economy.
Since the initial rejection however, a reconciliation commission (in
which both houses of parliament and the government are represented),
has been working on a new version. The reconciliation commission is
due to have a final meeting on Wednesday, with the Duma giving the
budget a new first reading on November 20 or 21. There is no legal
framework to cover the failure to pass the budget, but parliament has
faced the problem every year of Russia's independence except 1996 and
has in the past approved temporary budgets.

The
work of the reconciliation commission is being drawn out because
neither the communist majority in parliament nor the government wants
to take responsibility for making a decision on the budget. Russia is
trying to keep to a small deficit in 1997 under pressure from the
International Monetary Fund, but the Duma is eager to increase budget
spending to a starved economy. Reform minded deputies want a lower
budget deficit to achieve lower credit rates--which they say are
vital for economic growth but which are kept high through heavy
government borrowing. The dilemma is that the communists in the
parliament want to increase spending and as a majority they can block
implementation of any budget bill.

Taxation

Russia's tax system is an exercise in frustration for both Russians
and foreigners. The problem arises because it seems that many taxes
spring out of the blue and carry heavy retroactive penalties"
which are often three times the tax amount due. Russian tax reform is
difficult now because the government desperately needs money and has
little room to maneuver since revenues are static and low. The budget
take, both federal and regional, came in at just 27.3 percent of GDP,
compared to 50 percent in the Czech Republic and 47.7% in Poland
Russia's budget deficit has been narrowed in recent years, but this
only been achieved by cutting back on expenditures in real terms,
almost 50 percent from 1993 to 1995.

Like
the United States, Russia has a three-tiered system of taxation.
Federal taxes are enforced by Parliament, regional taxes enforced by
the regional councils, and local taxes enforced by the local
authorities. Under the existing system, very little coordination can
be found between the three levels of government which causes serious
tax policy problems. In a 1993 decree, regional and local authorities
were given the power to decide on types and sizes of taxes for their
jurisdictions. The hope was that authorities at each level, being
responsible to its citizens, would act within reasonable limits.
Local authorities, seeing a way to increase revenue, devised more
complicated and exotic taxes. There are 150 locally imposed taxes
within the Federation . They were competing who would invent the more
interesting taxes at their respective levels--for example a tax on
grazing cattle.